To Airbnb or Not to Airbnb: Short Term Rentals & Insurance Implications

This article was authored by Jess Hilb, CLCS and first appeared on Quorom Magazine, the award-winning premier publication of the Washington Metropolitan Chapter Community Associations Institute.

It was also something that we thought was said, especially by our parents, to prevent us from having fun. This may be true, to a certain extent, however, it does not mean that there was no truth in the statement.

Rather, as we point out further in this article, this adage is something that we in the community association management space need to bear in mind as we navigate the summer season as our community residents and their guests enjoy our common areas and open spaces.

What you will learn:

Rentals from an Insurance Perspective
Hidden Hazards from Short-Term Rentals
Implications for Associations
Carrier Appetite and Coverage Consequences
How to Address the Issue Proactively

Dealing with Rentals from an Insurance Perspective

As short-term rentals continue to grow in popularity through platforms like Airbnb and VRBO, many community associations—particularly condominium associations—are facing a rising tide of dynamic changes as a result. While the idea of maximizing property income sounds appealing to unit owners, the implications for insurance coverage, claims handling, and community safety are far from simple.

Understanding the risks and the impact of short-term rentals on insurance policies is critical for Boards, Property Managers, and unit owners alike.

The Hidden Insurance Hazards of Short-Term Rentals

From an insurance perspective, short-term rentals introduce a host of potential problems. Traditional homeowners or unit owners’ policies are not designed to cover business activities such as transient rentals. In most cases, renting out a unit on a nightly or weekly basis is considered a commercial use of the property—something many standard insurance policies exclude.

This becomes especially problematic when a claim arises. Consider a scenario where a short-term guest causes a kitchen fire or leaves a bathtub running, flooding multiple floors. If the unit owner has not disclosed the short-term rental activity to their insurer or failed to secure appropriate coverage (i.e., a landlord or short-term rental policy), the insurance company may deny the claim outright. This denial can lead to litigation and leave both the unit owner and the association financially vulnerable.

When the Association Becomes the Backstop

Even more concerning is the impact on the condominium association itself. When an owner’s insurance fails to cover a loss, the association’s master policy often becomes the payer of last resort. This shifts financial liability from an individual owner to the entire association. Not only does this deplete reserves, but repeated claims associated with short-term rentals can jeopardize the association’s insurability.

Insurance carriers are increasingly scrutinizing associations that allow or fail to regulate short-term rentals. A high frequency of claims—especially from non-resident activity—can result in higher premiums, reduced coverage options, or outright policy cancellations. Once labeled a “high-risk” property due to short-term rental exposure, associations may struggle to find competitive coverage, if any at all.

Carrier Appetite and Coverage Consequences

Insurance companies typically assess risk based on the expected use and occupancy of a property. Communities with a high percentage of owner-occupied units and stable residency are seen as lower risk. Conversely, short-term rentals introduce frequent turnover, unfamiliar guests, and inconsistent property use—all red flags for insurers.

Carriers may respond by:

Requiring detailed rental data, including percentage of units rented short-term.
Mandating stricter risk mitigation measures (i.e., security systems, noise monitoring).
Increasing deductibles
Excluding certain types of claims, such as property damage caused by guests.
Non-renewing policies for communities with high rental exposure.

In worst-case scenarios, associations may be left to rely on surplus lines or non-admitted carriers, which often offer limited coverage at significantly higher costs.

Addressing the Issue Proactively

To protect their communities and maintain insurability, associations must take a proactive stance:

Review and Update Governing Documents
Clearly define rental restrictions and minimum lease terms. Many associations set lease minimums of 30 days or more to discourage transient use.
Require Owner Disclosures
Mandate that unit owners disclose any rental activity and provide proof of appropriate insurance, including liability and property damage coverage that extends to short-term guests.
Educate Owners on Risks
Communication is key. Owners need to understand that short-term rentals are not just a personal income decision—they can have serious consequences for the entire community.
Consult with Legal and Insurance Experts
Associations should work closely with legal counsel and experienced insurance brokers to ensure their rules align with carrier expectations and that the master policy offers adequate protection.

Conclusion

Short-term rentals may offer financial rewards to the individual unit owner, but they carry significant risks to the community. Condominium associations must weigh these risks carefully and establish clear policies to preserve the safety, stability, and insurability of their communities. In today’s volatile insurance market, doing nothing is not an option.